April 12, 2000
Governors Criticize Internet Tax Panel
By DAVID CAY JOHNSTON
ore than two-thirds of the nation's 50 governors today will deliver
to Congress a scathing bipartisan
attack on the Internet tax commission, denouncing it as a forum for
special interests seeking tax breaks
while threatening the system in
which states set their own tax policies to pay for police, firefighters and
schools.
The letters come as the Republican leadership in Congress conducts
a series of events to toast the report
by an advisory commission that
would effectively continue the exemption from sales taxes on products sold by companies that operate
only in cyberspace. National retailers with bricks-and-mortar stores
would have to continue collecting
sales taxes on all sales, including
those over the Internet.
By last night, 36 governors, most of
whom have reputations as tax cutters, had signed a letter saying that
Congress should not interfere with
the right of each state to determine
its tax policy.
The most important reason to oppose the Internet tax commission's
report "is that it would substantially
interfere with state sovereignty," the
governors wrote.
"The U.S. Constitution was very
clear in both ensuring state sovereignty and creating a critical balance between federal and state authority.
For well over 200 years the
federal government has respected
state sovereignty and has been extremely careful not to interfere with
the states' ability to independently
raise revenues. This proposal would
dramatically undercut this precedent," the governors wrote.
The letter also says that the Internet tax commission ignored its mandate, instead pursuing special interest tax breaks sought by companies
with seats on the commission.
"Instead of addressing the requirements laid out in the law to
recommend a new state and local
sales tax system to provide for fairness and balance," the governors
wrote, "the proposal chose to use this
opportunity to seek a host of new and
expensive special tax breaks. We
urge you to reject the report."
The letter was signed by 19 Republicans, 15 Democrats and two independents, Jesse Ventura of Minnesota and Angus King of Maine.
Four other governors sent separate letters supporting state sovereignty in taxation as a Constitutional
principle, but not attacking the Internet tax commission.
Among the governors who did not
sign the letter were George W. Bush
of Texas, Jeb Bush of Florida,
George E. Pataki of New York and
James S. Gilmore 3rd of Virginia, all
Republicans, and Gray Davis of California, a Democrat. Governor Gilmore headed the Internet tax commission.
The support for a tax-free Internet
has caused deep divisions between
Capitol Hill Republicans and Republicans who run statehouses and city
halls, where sales taxes are the largest single source of revenue.
The Capitol Hill Republicans are
also under attack from retailers
ranging from organizations of mom-and-pop merchants to Wal-Mart, the
nation's largest retailer. Only a
handful of large retailers favor the
proposal to keep the Internet exempt
from sales taxes.
Republicans on Capitol Hill, who
say any tax cut is a good tax cut, see
the Internet as critical to future prosperity and want to be seen as its
protector from taxes.
But in a sign that solid support
among Congressional Republicans
for a tax-free Internet is weakening
in Washington, Senator John McCain
yesterday quietly canceled plans for
the Senate Commerce Committee to
vote tomorrow on a bill to extend the
Internet Tax Freedom Act for three
years to 2006. The withdrawal was
revealed when the issue did not appear on the committee agenda.
Mark Buse, the committee staff
director, said the planned vote was
delayed indefinitely "at the request
of Senators who wanted more time to
look at the issue and find out if they
are in favor of a moratorium or
favor new taxes on their constituents."
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A bipartisan group
raises the states'
rights banner. | |
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Mr. Buse said Senator McCain favors "stepping back and taking a
larger view" of Internet taxation and
wants to avoid "a rush to judgment
on how to impose taxes" on goods
and services.
The commission, Mr. Buse said,
"was too highly political and did not
provide any glide plan to answer
these complex questions."
Raymond C. Scheppach, executive
director of the National Governors
Association, said he was delighted
that Senator McCain has delayed action. "This means we are getting
through" with the message that
"who has the right to cut taxes in the
states. Is it the federal government
or is it the states?"
Gov. Michael O. Leavitt of Utah, a
tax-cutting Republican who organized other governors to sign the letter, said he, too, opposes taxes aimed
at the Internet, but that protecting
the Internet as a tax-exempt zone
will distort the economy and shift
power to Washington.
"I do not believe the Internet
should be taxed. No bit taxes, no
bandwidth taxes, no access taxes. We
should not do anything that will inhibit this powerful engine of economic growth. But that is not the issue
here. The issue is whether the states
will determine their own tax policy
and whether business will have a
level playing field. This is about
whether local government will be
allowed to function independently of
the national government."
Governor Leavitt said he persuaded so many governors to sign the
letter because they "see this as the
most significant federalism issue we
have faced in this century."